A CDGE, Great Decisions and IT Collaboration

Will an elected Muslim Brotherhood Party Result in a Fundamentalist Islamic State?

Many people fret about what would happen in Egypt if the Muslim Brotherhood grew in its power. According to the Chicago Tribune “with more than 43 percent of the seats in parliament, the Brotherhood is the biggest of the parties that emerged from Egypt’s most democratic elections in six decades.. Local media reports have named Khairat Shater, the deputy head of the Brotherhood, as a possible candidate for prime minister.”

As one of the founding civil society organizations responsible for a “fundamentalist Islam”, we have become used to reading about their complex history that suggests that they would institute an Islamic state. What are the images that come to mind when one thinks of an Islamic state? I would submit, that in the West, when we think of an Islamic state, we imagine an Iran-like-Theocracy or the Taliban in Afghanistan. In reality, the situation is a bit more complex and according to Tariq Ramadan it is changing.

First, there are many examples of Islamic states (see below) that are not theocracies and do a decent job at democracy and maintaining the rule of law. Furthermore, Grand Mufti Gomaa of Egypt has suggested that “a civil state means a modern nationalist state that is compatible with Islamic provisions.”

Do nations that adopt state religions protect civil and human rights and religious freedoms?

According to Gomma quoted in Egypt Independent “Egypt’s religious traditions are historically linked to Islamic concepts that are based on tolerance and respect for religious differences. Egypt’s Islamic identity does not clash with its civil system, which defends citizens’ rights regardless of their faith. The mufti said the rights of Egypt’s Coptic Christians will be protected and that religious diversity should be respected.”

Second, many members of the Muslim Brotherhood and people that belong to Islamist parties in other countries are changing their rhetoric from “Islamist” to “civil”. For a neat discussion of this trend see Tariq Ramadan’s oped.

Finally, its important to remember as Dr Ramadan has pointed out that the notion of an Islamist state, as espoused by the Brotherhood was in part a response to western domination. “The state, defined as ‘Islamic’ was..the only structure that could ensure the political independence, religious identity (as opposed to secularisation, implicitly directed against Islam) and cultural specificity of the emerging Arab state entities. It was an ideological response which must be assessed in the light of the prevailing issues of the day.”

What intrigues me is how the language and rhetoric of the former Islamists is changing to be inclusive but at the same time attempts to maintain its identity separate from the west. This is as it should be.

The “Arab Spring” and Egypt

When asked to evaluate the effect of the “Arab Spring” upon the economy in Egypt, I guess my response would have to be: “Probably, not much.” The revolution in Egypt, which is one of the main events within the “Arab Spring”, was mostly a political revolution. They ousted Hosni Mubarak, cleaned up corruption in the government and demanded a rewriting of their constitution. However, as fine and dandy as all of those things are, they are going to have little economic impact. Alright, one could cite the fact that state officials used their influence to create business trusts for their benefit, the most notable being in the steel industry with over half of the entirety being controlled by Egyptian political figures, but the other trusts are much smaller. That steel industry fact is misleading as well, considering that Egypt’s economy is only 40% industrial production [1]. The true problem that Egypt faced was, and still is, unemployment. With unemployment figures hovering in the low to mid teens; the job market is in dire straits in Egypt. This is caused by a massive youth bulge within Egypt; the population has more than doubled in the past 40 years and the labor force is growing at the size of 4% a year [4]. That is a problem that is not going away with a simple political revolution. The Egyptian economy could have possibly kept up with this massive population growth, if it hadn’t been for the collapse of international markets a few years after the turn of the century. The growth of GDP has been crawling along for the past couple years, and the recent revolution has lowered the projected GDP for the country, the World Bank actually is predicting a slowing of all growth in developing countries in the next few years [2] . This in combination with unrest over low minimum wages, which means that the newly elected politicians will probably cave in an attempt to curry favor, means that unemployment will probably rise even more. So I retract my previous “not much” statement, and replace it with, “it’s going to get worse.” Now while there will be some changes in the economic environment with the reduction of corruption, Egypt scored  a 3.1 on the Corruption Perceptions Index in 2010 so it’s not like they could get much more, it is doubtful they will be able to even come close to combating this unemployment problem [3]. The closest thing Egypt has to a chance of overcoming this, in my opinion, is for the new government to take the hit. Raising the minimum wage, while reducing taxes, specifically payroll taxes, would serve to boost the economy. An expansion of the bureaucracy and government sponsored projects to reduce unemployment, similar to the method championed by Rick Perry in Texas, would also serve to boost the economy. This, however, would increase the government’s debt, with it occupying over 85% of GDP already [1]. The future does not look bright for Egypt in my opinion, I foresee it having a rough couple of years, with bigger problems looming farther down the line. That is because Egypt’s problems result from severe structural issues within the economy that cannot be rectified through a simple regime change.

[1] https://www.cia.gov/library/publications/the-world-factbook/geos/eg.html

[2] http://web.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/GEPEXT/0,,contentMDK:22804791~pagePK:51087946~piPK:51087916~theSitePK:538110,00.html

[3] http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results

[4] http://www.marketplace.org/topics/world/new-egypt/long-term-economic-challenges-egypt-must-overcome

Egypt and the Economic Implications of the Arab Spring

From one the first days of protests in Egypt January 25st 2011 in Tahrir Square, it was more than apparent change was coming. Over a year after 30-year reigning President Hosni Mubarak stepped down, who knew lasting changes would feel so… slow? Parliament was dissolved, the constitution was suspended, and the Armed Forces of Egypt assumed power. But according to Esraa Abdel Fattah the “Facebook Girl”, the “Mubarak regime” lingers and life is not better in the country compared to last year (Staff 2011).

While fair elections were held, the Muslim Brotherhood came out on top of the elections. As this replacement parliament works on drafting a new constitution, violence against peaceful protests and conflicts continue in the streets.  Unrest at this point is waiting to be sparked by anything; one such flicker is due to ruling generals (Scaf) unwilling to surrender power. The balance of power in Egypt may leave many citizens, especially women between a rock and a hard place.  The presence of the Muslim Brotherhood will keep a dominating Islamic residual meaning that state will still favor religious influence and the two will not be separated. On the other hand, military control as experienced for nearly ten months after Mubarak was forced to resign his position became an evil at the behest of “supra-constitutional principles” putting military control before civilian politics (Staff 2011).

Since these protests, over-takings, disbandings, and violence are not unique to Egypt as the macro economic effect of the Arab Spring on the region has been very noticeable. Egypt’s GDP in mid-2011 was expected to see a 2.5% fall, in addition to Tunisia, Syria, and Yemen GDP contractions (Martin 2011).  The only country expected to have expanding GDP growth was Bahrain with a 2.5% increase, its slowest pace of growth since the 1990’s (Martin 2011).

The biggest hit on any of Egypt’s sectors is to tourism, which accounted for 6% of GDP in 2010. More importantly, this sector accounts for between 10 and 15% of employment in the labor force (AFP 2012). Due to violence, protests, and fear, tourism has seen significant decreases in visitor arrivals (down 33%), duration of time spent in Egypt (down 23% from 141 million nights in 2010 to 114 million in 2011), and dollars spent per day while visiting (down to $72 per day compared to $85 in 2010) (AFP 2012).

This hit to the tourism sector has been a part of the significant increase in unemployment over the past year. Beginning January at about 9% unemployment in October 2011 has been measured at 11.9% (www.tradingeconomics.com 2011). What I believe is not represented in any of this data is the unemployment of day workers in these major cities, lower class citizens that receive unmeasured benefits from high levels of tourism for various reasons.

Egypt’s deficit was expected to be 12.5% of GDP in 2011, and expected value of the Egyptian pound to decrease by 20%.

This inflation has been addressed by the Central Bank of Egypt, which stepped in and used significant reserves to prop up the value of the pound, rather than let it fall to its real value (Salah-Ahmed and Daily News Egypt 2012). While the allocation of reserves has been denied by some; it may be a smart (short-term) move in order to keep relative prices from rising too quickly. As long as inflation is still occurring, steep increases will lead to shoeleather costs from reduction in individual daily cash holding, as well as menu costs that can affect the variability of relative prices in the long run and create inefficient allocations of resources.

While it will undoubtedly take a long time to regain a stable economic environment, the most significant help will come from an established and widely supported government.

The Economic Impact of the “Arab” Spring on Egypt’s Economy

“Ever since the revolution, there’s been no work… I have three kids and I can’t even provide for them.” (Kenyon, 2011) Abu Saud Mustafa was interviewed in June of 2011, just following the string of revolutions caused by the “Arab” spring, which then resulted in the over-throwing the Egyptian President Hosni Mubarak. Mustafa an artist who sold papyrus sheets drawings that once sold for $15 dollars now only sell for $2 or $3. (Kenyon, 2011) It became clear to those living in Cairo at the time that the economic outlook was bleek. What once was a thriving tourist destination has now become nothing more then a city in the headlines. Corruption, unemployment and a significant economic downturn factored into this outlook so much that even the government worried about market instability. With the unemployment rate up to 12 per cent and investment dramatically decreasing, the government had every right to worry. (Khalaf, Saleh and Allam, 2011)  The ousting of Mubarak shifted a number of things within the Egyptian economy, but it most dramatically affected the confidence of investors within the economy. Many Egyptian businessmen have moved into Europe and other countries for fear that they might be brought up on corruption charges in despite their innocence. (Khalaf, Saleh and Allam, 2011) Fear with in the public sector caused by the revolutions drive for justice against corruption significantly reduced market production and therefore lead to a shrink in the economy.

Despite the surge of movement of Egyptian investors out of the country, numerous foreign governments have pledged tens of billions of dollars in financial support to the future of the Egyptian economy. Although this pledge of investment in the “long-term development” of Egypt will pan out to be significant in the long run, the short run economy will not see a significant change. (Khalaf, Saleh and Allam, 2011) As economists believe that in the short run prices are ‘sticky’, a pledge of money to the economy, especially a pledge to help the “long-term” development of the country, does not immediately affect the prices within that economy. Although prices are not affected and the short run looks bleak, the long-term development is potentially more important than the short run. The plans for the long run offer a sort of stability and a look at the future of an economy.

The interim government in place has taken a few steps to enhance the economic state of Egypt but despite this there is only so much that a government with little economic experience can do. While raising the public sector wages by 15% was a much-needed action, their decisions with relation to fiscal policy are less then impressive. After proposing a budget to plug a deficit of 10.6 per cent and negotiating loans with various banks, Egypt then turned down the loans and trimmed back the budget all together.  (Khalaf, Saleh and Allam, 2011) This left the Egyptian people wondering about the future of their economy.

The significance of the fall of Mubarak to Egypt comes not just in the change in the corruptive power of the government but also a change in the potential for success that exists in the Egyptian economy. Due to it’s large and diversified domestic market Egypt has the potential to become a “powerhouse” within its region. The ousting of Mubarak allows for further economic production within the economy by opening up the market for new goods and allowing for additional production. As the financial times states, “the country has been held back by bad economic management, excessive bureaucratic control and poor education.” (Khalaf, Saleh and Allam, 2011) With this chance for a new form of control over the economy there comes a chance for an increase in the economic status of Egypt within the Middle East.